Another 'great revolution' is happening in Libya and - you guessed it - it's all about property.

The one-time pariah state is opening its doors to foreign buyers and, in an attempt to attract gin-guzzling infidels from the West, is even considering designating alcohol-consumption zones in the otherwise dry country.

The recent thaw in diplomatic relations with Libya, coinciding with changes in property ownership laws, has seen a number of foreign developers enter negotiations with Colonel Gadaffi's government over tourism and housing schemes.

Advantages to investors include the possibility of impressive capital growth, the certainty of miles of sandy beaches and enough sun to make you want to don a pair of Gadaffi's trademark sunglasses.

But this new market is not without risk: the concept of property ownership is relatively new, the associated laws are constantly changing, and obtaining a visa can still be difficult.

A taster for what's to come is the planned development at Farwa Island in the north west of the country, close to the border with Tunisia. Following the first non-oil-related contract between the Libyan government and a foreign firm since the diplomatic thaw, Italian property company Gruppo Norman will start work next year on a holiday resort with 1,770 hotel rooms and 50 villas available to buy outright.

The 14.4 million sq metre site will cost approximately €200m and include an 18-hole golf course, marina for 150 boats, fitness centres, restaurants and shops. The Sabrata Roman ruins (there are numerous and splendid examples of such ruins in Libya) are within walking distance.

The development is not actually on an island: it is on a spit jutting out into the Mediterranean. Six man-made islands - each with four villas - will be built in the protected waters between this and the mainland. The luxury villas will have access to hotel and sporting facilities, have 200 sq metres of floor space and are expected to cost £250,000. They will go on the market next year, sold on an off-plan basis; no stamp duty is payable under current laws.

Gruppo Norman says that the deal has not been compromised by a diplomatic incident earlier this year in which Gadaffi threatened attacks on Italian interests in Libya, demanding millions of dollars in compensation for thousands of deaths during Italy's 33 years of colonial rule in the country.

A spokesman for the company says property development represents the 'last step of Libya coming in from the cold'. The legal system now encourages foreign investment and the Italians' contract with the Libyan government stipulates that transport infrastructure will be improved. The ban on drinking and gambling could also be relaxed on the site. 'Libya does not allow alcohol consumption but we are working with the government to allow alcohol within the resort while minimising any cultural and religious impact on the mainland,' said the spokesman.

'While it's not like buying a house in Italy, I'm confident that many of the difficulties will be sorted out. Quite a few developers are interested in going in. But as far as we know no other contractor has signed a deal.'

Dubai-based developer Emaar Properties says that plans to construct mixed-use developments in the North African country are 'still on the drawing board'.

Buying in Libya could mean substantial capital growth, reckons Liam Bailey, head of residential research at estate agent Knight Frank. 'People are going to the nth degree to find the next hotspot. These sort of markets suit a certain sort of individual: the "pioneer buyer".' But anyone thinking of donning their shades and kitsch Gadaffi T-shirts - which are all the rage in the souks of Tripoli, apparently - and snapping up an apartment there should beware of the numerous risks they run.

Libya is still essentially a military dictatorship, with a political system combining socialism and Islam. During two decades of international ostracism, Gadaffi supported terrorists abroad and in 2003 Libya accepted responsibility for the 1988 airliner bombing over Lockerbie. However, in recent years Libya has normalised relations with the West, ended its weapons programme and offered compensation to some terrorism victims.

'You can be wary for so many reasons. But usually if you take a higher risk you reap a higher reward,' says Reema Ali of Middle Eastern legal firm Ali & Partners. 'Purchasing property is likely to be a very lucrative opportunity for foreign investors - it's so undervalued. They eradicated ownership of property as part of the 1970 ideological revolution. But now they have taken the decision to encourage foreign investment.'

However, Ali adds that 'there's nothing static in Libya' and that frequent amendments to laws undermine a stable legal atmosphere suited to foreign investment.

'There's some uncertainty over how long the laws will stay the same. They have a very elaborate bureaucracy - there's just so much government.

'However, I don't see Libya reverting back to the socialist mentality - they tried that; it didn't work,' says Ali. 'I think that property is going to be the way to go in Libya, after oil. They're looking at Dubai with envy.'